IOT : TOKENISATION
Digital commerce infrastructure faces fundamental change as financial institutions move to replace traditional security architecture with tokenisation technology , driven by escalating online fraud and the need to secure crossborder transactions .
The integration of tokenisation across sectors marks a shift from conventional data protection methods to a more dynamic approach for securing digital interactions .
Here , FinTech Magazine takes a look at the latest signals report from Mastercard , The Invisible Handshake , as we track how far tokenisation has evolved and what it means for various industries now and in the future .
Technical foundations and implementation Tokenisation differs fundamentally from encryption in its approach to data security . While both encryption and tokenisation use cryptography to protect data , they work differently .
Encryption converts data into an unreadable format requiring a key for access , whereas tokenisation uses cryptography to replace sensitive data ( such as payment card or biometric information ) with unique onetime tokens .
These tokens are stored separately on each device and merchant , ensuring the original data is never stored in these systems and making the tokens meaningful only for their intended transactions .
The original data remains with the sending organisation rather than being transmitted in encrypted form .
The process involves converting sensitive information into randomised character strings stored in secure token vaults . These vaults maintain isolation between original data and operational systems . During transactions , a tokenisation system receives sensitive information , such as credit card primary account numbers and converts them into random character strings .
To enhance security , this information undergoes encryption before the payment token represents the account number throughout the transaction process .
Smart contracts enable programmable payments that respond dynamically to events or changes in the environment . This programmability extends beyond routine bank transactions to more sophisticated operations .
Tokens contain built-in instructions that activate under specific conditions , offering control and transparency while reducing risk . Applications include automated escrow accounts , fund earmarking and loan disbursement .
In 2023 digital fraud cost US businesses and consumers
US $ 12.5
66 February 2025